Jefferies upgrades Bharti Airtel to buy, sees 13% per-user revenue growth by FY25

According to Jefferies, Bharti Airtel is likely to see 13 percent growth in its mobile average revenue per user (ARPU) over FY23-25 adding that market share gains are likely to accelerate amid 5G rollouts.

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Shares of Bharti Airtel traded firm in a bearish market after global research firm Jefferies upgraded the stock to ‘buy’.

Jefferies has a price target of Rs 900 for the stock, an upside of 16 percent from the current market price.

At 10:31am, Bharti Airtel traded at Rs 772.80, down Rs 1.05, or 0.14 percent, on the BSE. It has touched an intraday high of Rs 778.95 and an intraday low of Rs 769.90.

According to Jefferies, the telecom major is likely to see 13 percent growth in its average revenue per user (ARPU) over FY23-25 and its share of the telecom market is likely to widen on 5G rollouts. The research firm has however cut the estimates by 1-4 percent to factor tariff hike delays.

“Over FY23-25, we expect a single tariff hike of 15 percent towards CY23 end,” Jefferies said.

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Share gains among 4G users driving ARPUs

Bharti Airtel has seen an acceleration in market share gains among active 4G users, evident from its 60 percent incremental market share in H2 CY22 against its overall market share of 30 percent which has helped it improve its subscriber mix and raise its daily ARPU by 4.4 percent over H2 CY22.

With another 107 million voice subscribers on its network yet to upgrade to data, Bharti’s ARPU will likely rise by 4-5 percent annually on the back of improvement in subscriber mix, Jefferies said.

Intensifying focus on boosting ARPU

According to Jefferies, after favourable market share movements in Haryana and Odissa, where Bharti had discontinued its Rs 99 plan in November, the company extended this move to 19 circles recently, contributing to over 90 percent of its India mobile revenues.

This move will add to 2 percent to Bharti’s revenues by Q1 FY24 and more importantly, indicates that Bharti is looking to boost ARPUs even if it leads to some churn among low-ARPU subscribers.

An effective duopoly in the works

Vodafone Idea may potentially be able to secure incremental funding given government’s support but this is unlikely to match Bharti Airtel and Jio‘s capex plans of $9 billion and $25 billion over the next three years. Vodafone Idea is likely to witness accelerated market share losses as 5G becomes mainstream, Jefferies said.

“Initials signs are already visible in recent market share trends where in VIL has lost 3 percentage points market share in metro circles in Q3 FY23. As per calculations, Bharti Airtel’s fair value could rise by Rs120 per share in a duopoly,” the research note added.

Sunil Bharti Mittal, Chairman of Bharti Airtel at the Mobile World Congress said he feels that the return on capital (RoC) in the business is very low and that people are likely to see a tariff hike mid-2023.

Mittal said that Airtel has a healthy balance sheet with no need to raise any more capital. “Lot of capital has been injected that has made the balance sheet strong, but the return on capital of this industry is very low. That needs to change. We are talking of small increments that need to come in the Indian tariff situation. I hope by mid of this year,” he added.

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